To paraphrase Vice President Joseph Biden, President Obama’s new overtime pay rules are a big bleeping deal. Millions of Americans are set to get a pay raise, as a result of these new rules released today. The action is the capstone of an unprecedented string of executive actions by President Obama despite being stymied by Congress on a number of legislative initiatives such as an increase in the federal minimum wage. The administration has wielded its influence in every corner of the workplace—such as by promoting equal pay efforts in requiring employers to provide data on the gender, race, and age of their employees; protecting worker health by regulating deadly silica dust at thousands of construction sites; boosting work protections for employees of federal contractors by increasing the minimum wage to $10 per hour and providing them seven paid sick days; and boosting protections for 401(k) nest eggs by providing better disclosure of fees as well as proposing rules to ensure the plan acts in the worker’s best interest.
The rule announced today will increase the overtime salary threshold from $23,660 to $47,476. This change takes effect December 1, 2016 with automatic increases in the threshold every three years starting on January 1, 2020. Any workers under the new threshold will be entitled to time-and-a-half pay when they work more than forty hours a week, regardless of whether they have management duties or not.
The current threshold for salaried workers is only $23,660 (last raised in 2004) by President Bush. The low threshold meant that even very low paid workers who need overtime protections, such as store managers, office clerks, and even chefs, were exempt, because they were classified as “professional.” Overtime protections weakened by the Bush administration even allowed workers like fast food supervisors who spend most of their time directly interacting with customers to be counted as managers and thus exempt from overtime pay.
Once the new rules go into effect, a broad swath of low-level supervisors and middle-wage professionals will be guaranteed overtime rights if they earn the threshold of $47,476 or less per year ($913 per week). The final rule will keep the wage threshold at the 40th percentile of earnings for full-time salaried workers by automatically updating it in 2020 and every three years after that.
According to the Economic Policy Institute (EPI), the new rule will add new overtime coverage for 12.5 million salaried workers earning between $455 and $913 per week. These workers are more likely to have less completed schooling than a college degree and to be people of color—precisely the workers who have been the most impacted by stagnating wages. Senator Chuck Schumer has aptly called the overtime rules “the middle-class equivalent of raising the minimum wage,” targeting those families earning below the minimum wage but still struggling to get by.
The rule will also have a spillover effect on key sectors of the economy like retail—even if these workers are not paid any overtime. Many employers will raise the salaries of impacted workers close to the new limit to avoid the risk of paying over-time. Other firms, seeking to avoid paying large overtime costs, will need to hire more workers to fill in the resulting holes in their workforce, since they can no longer force workers to put in extra hours at regular pay. The National Retail Federation estimates retailers will add 120,000 jobs alone. And, of course, broader overtime protection will allow more workers time to spend with their families, which was one of the original intentions of overtime laws.
While many employers and business associations remain opposed to the rule, such opposition to the rule has thus far failed to gain traction in an environment in which 79 percent of Americans support raising the overtime salary threshold. The success of the overtime rule—like the major increases in the minimum wage in California and New York as well as new paid family leave laws—demonstrates the public appetite for policy changes that reward work and tackle crushing income inequality. This decisive executive action deserves to be richly celebrated.